Financial Safety

It is impossible for one to meet all of your expenditure from your earning, there will always be shortfalls in your budget. It is at this point that personal loans usually come in handy, as the will be used to fill the gaps created. Personal loans are usually unsecured loans taken from banks and other financial institutions. Since they are unsecured they are usually availed on the basis of how much one earns, credit records, employment history and repayment capacity.

The fact that this loan is unsecured is what differentiates it from other loans, but this is at a cost ofcorse. As no asset can be claimed, or auctioned as collateral for default in payment these loans carry higher rates than secure loans. These rates range from 10-12% on the principal amount. In addition to the interest payable on the principal amount, one will also be required to pay a non-refundable fee on application of the personal loan. This fee in most cases is usuallyreferred to as processing fee, it is meant to cater for all the paperwork and expenses that will be incurred while processing the loan. This amount ranges between 1-2% of the principal amount.

These loans can carry either fixed or floating interest rates. Fixed interest rates have fixed monthly installments. Floating interest on the other hand implies that the monthly installments will keep decreasing following the reducing balance method on interest, this may change either on a semiannual basis or annually. In the reducing interest rate the borrower will only be required to pay interest on the outstanding loan balance, while in flat interest rate the borrower pays interest on the entire loan balance throughout the loan term.

If a borrower misses the scheduled monthly installments and is also unable to make further payments in the future, the lender will try to recover the due amount through settlements and recovery agents, which if fails the loan will be branded as defaulted, and will be included in your credit report making it harder for you to access future loans.

It is a type of loan that its repayments are under installments or regularly scheduled payments. Each of the payment on an installment debt constitutes repayment of a part of the principal amount that was borrowed as well as the interest payment on the debt. The amount of each payment paid regularly is determined by the variables such as the loan amount, the rate of interest charged to the borrower and the term of the loan. Some of the common examples of installments loans are personal loans, mortgage loans or auto loans. Almost all installment loans have fixed rates meaning that the rate of interest charged over the term of the loan is fixed at the borrowing time. A mortgage loan is an exception since it is variable-rate loans because of the rate of interest changes during the loan term. These types of loans can, therefore, be either collateralized or non-collateralized. The collateral of a mortgage loan is the house in which it is being used to purchase. On the other hand, the collateral for an auto loan is the vehicle that is being purchased with the loan. The rates charged under-collateralized loans are lower than the rates charged under non-collateralized ones.

The process involved in installment loan.

An application is to be filed by the borrower with the lender of the loan by specifying the purpose of the loan. A discussion on various issues is to be done between the two regarding the term of the loan, down payment, schedule of payments and the amounts to be paid. Other fees are therefore to be paid by the borrowers in addition to the rates if interest such as the application fees and loan origination fees as well as other potential extra charges like late payment fees. The borrowers can usually escape other interest charges by making payment of the loan before the end of the term defined in the loan agreement.

Advantages of installment loans

They are flexible and therefore can be provided based on the needs of the borrower.

They are obtained at considerably lower interest rates.

Disadvantages

There can be fixed interest loan that can be paid by the borrower for longer terms at higher interest rate than the rate that is prevailing in the market.

There is a long-term financial obligation the borrower can be locked into hence the borrower can be rendered incapable of meeting the payments that are scheduled. It can, therefore, lead to a risk of default and a possibility that the collateral used to secure the loan can be forfeited.

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Truth in Lending Act

We display maximum APR, calculated consistently with the Truth in Lending Act (TILA) -The TILA regulations can be found at 12 CFR Part 1026. The description of which charges are included and excluded from the calculation of “Finance Charge” is found in Section 1026.4. The APR calculation for “Open-End Credit” is found in Section 1026.14, The APR calculation for “Closed-End Credit” is found in Section 1026.22